The world’s software giants have one thing in common: none of them is British. A recent TechMarketReview report into the state of the UK software industry threw up few household names among the top 10. Sage, Autonomy and Civica are fairly well known, but there cannot be many people outside of IT who have heard of Misys, Fidessa, Kofax, Aveva, SDL, Micro Focus and Intec Telecom.

So why does the UK software industry have such a low profile, and what can UK developers do to change this?

TechMarketReview analyst Anthony Miller says the fact that UK development companies tend to specialise in industry-specific applications means they will never gain mass recognition. “The UK software market is more vertical, which means the global opportunity is that much smaller. It is not like we have a Microsoft writing operating systems, for example. It tends to be specific applications such as Autonomy and Sage,” says Miller.

This does not mean that UK development companies have trouble gaining customers abroad, however. The TechMarketView report found that 72 per cent of sales by British software houses were to overseas markets, responsible for an estimated £4.6bn of revenue flowing into UK coffers from international sources.

But while those in the business can legitimately claim to be in rude health, there is no doubt the scale of the UK software industry looks modest compared to the US and other European countries.

This might be because those UK software companies that have managed to establish a thriving business tend to become victims of their own success before they have the opportunity to grow further.

“The good players tend to get snapped up fairly early on,” says Miller. Last year saw UK accountancy software specialist CODA acquired by Dutch company Unit 4 Agresso for €230m (£209m), for example. And the Capita Group bought out UK business process outsourcing and professional support services firm IBS OPENSystems in the same year, before being promptly forced to sell on much of the same company’s assets to Civica following intervention from the Competition Commission.

A recent drop off in merger and acquisition (M&A) activity may extend the life of UK software companies on the brink of being swallowed whole by larger firms, however. M&A in the UK technology sector dropped by 80 per cent from the second to the third quarter of 2009, according to financial and business consultancy Grant Thornton. Deals struck were worth just £656m, compared with £3.5bn in the previous quarter. The figures were also down significantly on the same quarter in 2008, which saw 84 separate deals worth a total of £1.7bn.

UK software companies may be struggling to make their mark, but that is not to say they lack good ideas for innovative applications or the ability to spot a business opportunity.

The SETsquared Partnership is a joint commercial venture that combines the resources of the universities of Bath, Bristol, Southampton and Surrey to incubate fledgling UK software companies. It says it has seen £52.5m of funding from private investors and venture capitalist funds injected into startups under its wing since its inception in 2002, creating 142 tech sector jobs along the way. Success stories include advanced number plate recognition company Digital Recognition Systems, supply chain modelling application developer Plexus Planning and network service assurance software company Sidonis.

“The UK is good at innovating but is less good at taking those [ideas] to market,” says SETsquared projects director Karen Brooks, adding that many of the challenges most software companies encounter are no different to the very obvious barriers that face any startup.

“Where software can be slightly less easy is where it either has the potential for high growth but needs ideas accelerated and supported, or where it gets to the point where we realise it is not going to fly, which is equally important,” she says.

Miller agrees that there is no shortage of software developers with good ideas. But while money to get those software companies off the ground can usually be found – often from family and friends – getting hold of more cash to fund further expansion can be far more problematic.

“If you are a real startup, you can get funding at a very early stage if the product is good, but it is the software companies that are just getting into positive cashflow that need one last tranche of funding that find themselves in the valley of death,” he says. “The key question is where do you go – it is not like picking up Yellow Pages and finding the right venture capitalist.”

The TechMarketView report estimates that there are about 40,000 UK citizens now working in the US software industry, partly because they can gain better paid employment at existing development houses, but also because they know software startups in the US have better access to venture capital.

The US certainly represents a major opportunity for UK software companies looking to expand their operations, but they have to proceed carefully.